Parva Dubey - Ica.docx

A PROJECT ON

KEY FEATURES OF INTERNATIONAL COMMERCIAL ARBITRATION SUBMITTED TO: MS. VINI SINGH [FACULTY OF INTERNATIONAL COMMERCIAL ARBITRATION (ICA)] DATE OF SUBMISSION: October 8th, 2015

BY: PARVA DUBEY (Roll No. 91, Semester VII)

HIDAYATULLAH NATIONAL LAW UNIVERSITY

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ACKNOWLEDGEMENTS I would like to take this opportunity to express my deep sense of gratitude towards my course teacher, Ms. Vini Singh for giving me constant guidance and encouragement throughout the course of the project. I would also like to thank the University for providing me the internet and library facilities which were indispensable for getting relevant content on the subject, as well as subscriptions to online databases and journals, which were instrumental in writing relevant text. Special thanks goes out to my seniors who have been relentless in their help and supporting providing any material whenever required and my colleagues, who always stood by me, irrespective of the decisions taken by me. Without their support this project would not have seen the light of the day.

PARVA DUBEY SEVENTH SEMESTER B.A. LL.B. (HONS.) HIDAYATULLAH NATIONAL LAW UNIVERSITY, RAIPUR (CHHATTISGARH) 2|Page

Introduction………………………………………………………………….4

Key Features of ICA  Dispute Settlement……………………………………………………7  Arbitration as a Dispute settlement mechanism………………………8  Commercial…………………………………………………………...9  International…………………………………………………………10  Why do parties choose ICA?..............................................................12

Conclusion…...……………………………………………………………..14

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INTRODUCTION International commercial arbitration is the process of resolving business disputes between or among transnational parties through the use of one or more arbitrators rather than through the courts. It requires the agreement of the parties, which is usually given via an arbitration clause that is inserted into the contract or business agreement. The decision is usually binding. The non-judicial nature of arbitration makes it both attractive and effective for several reasons. There may be distrust of a foreign legal system on the part of one or more of the parties involved in the dispute. In addition, litigation in a foreign court can be time-consuming, complicated, and expensive. Further, a decision rendered in a foreign court is potentially unenforceable. On the other hand, arbitral awards have a great degree of international recognition. The reasons why parties choose international commercial arbitration to solvetheir disputes can be separated into reasons that are applicable to arbitration in general and those that are applicable specifically to international arbitrations. The most favorable situation for a party to a dispute in an international commercial transaction is to litigate in one’s own courts. Even if the courts are scrupulously unbiased, that party is litigating at home using its regular lawyers, following a familiar procedure and in its own language. While that is good for one party to the transaction, it is not so good for the other party who faces all the difficulties of litigating in an unfamiliar procedure, in a language that may be foreign and may not be the language of the contract, and not being able to use its lawyers who are familiar with the company. It is also not irrelevant that the one party is staying at home while the other party is staying in a foreign country with all the inconvenience and expense thatentails. Arbitration of such disputes is a means to reduce the inequalities. While it is possible for the arbitration to take place in an arbitration organization locatedin the home country of one or the other party, it is also possible for the arbitration to be administered by an arbitration organization located in a third country. Furthermore, many arbitration organizations will administer arbitrations throughout the world. There is active competition among leading arbitration organizations to offer their services worldwide.

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There are special concerns about the partiality of the courts when the State is a party to the dispute. The State has too many means to influence decisions inits own courts for foreigners to feel comfortable litigating against it there. The same might be said about arbitrating against the State in an arbitration organization located in that State. This factor is the major reason for the extraordinary increase in the number of bilateral investment treaties in recent years in which foreign investors have the option of instituting arbitration in judgments, the only significant multilateral treaty exists only between the member States of the European Union. By way of contrast, 135 States are party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. While there are lingering problems with implementation of the Convention by the courts in some States, they are on the whole relatively minor ones. One of several arbitration forums outside the host State. A final reason for the current popularity of international commercial arbitration is the comparative ease of enforcement of an award as compared to the enforcement of a judgment of a foreign court. Unless there is a treaty between the State in which the judgment was issued and the State in which enforcement is sought, the requested court is under no international obligation to enforce the judgment. While there a number of bilateral treaties for the enforcement of judgments, the only significant multilateral treaty exists only between the member States of the European Union.

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 RESEARCH METHODOLOGY The method of research adopted in this project can be attributed to secondary sources. The information has been obtained from books, published articles, reports and websites.

 RESEARCH OBJECTIVES The Objectives of the project is tostudy the key features of International commercial arbitration.

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Key Features Of ICA

Dispute Settlement Whenever two or more parties have a dispute, it would be preferable if they were able to discuss it between themselves and to arrive at a peaceful solution. That is true whether the parties are members of a family, States or commercial entities. Only the parties themselves can achieve a solution that will not only resolve the dispute, but will facilitate a useful future relationship. However, sometimes the parties are not interested in any future relationship and only want the dispute to be settled, preferably on their own terms. That may lead to war or its private equivalents. Even when they are interested in a peaceful settlement of the dispute, it is not infrequent that the parties are not able to discuss – or negotiate – a mutually agreeable solution. In such a situation the aid of a third party must be sought. The State offers one form of third party settlement of private disputes by maintaining a court system in which they can be litigated. Most private disputes that require the services of a third party are settled by litigation, though many of them are settled directly between the parties once the litigation has begun. It is also possible for the parties to involve third persons in a private capacity to solve, or to help them solve, the dispute. Arbitration is the most prominent of the private dispute settlement mechanisms, both domestically and for international commercial relations, though it is not the only one. Others will be briefly mentioned below after the basic characteristics of international commercial arbitration have been discussed.

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Arbitration as a Dispute Settlement Mechanism There is no express definition of arbitration, but if we take into consideration several treaties on it, arbitration can be said to have few elements, which are : 

arbitration is a mechanism for the settlement of disputes



arbitration is consensual



arbitration is a private procedure



arbitration leads to a final and binding determination of the rights and obligations of the parties.

If there is no dispute, there can be no arbitration. The issue arises most often when one party fails to pay a sum of money owed to the other, perhaps in the form of a negotiable instrument, and the debtor does not dispute the obligation. If there is an existing arbitration clause, the question arises whether the creditor can or must invoke the arbitration clause or, there being no dispute as to the existence of the obligation, the creditor can or must seek enforcement of the obligation by court action. This theoretical question can be of great practical importance if the debtor wishes to impede enforcement of the obligation and contests the appointment of the arbitral tribunal, if that is the route chosen by the claimant, or insists upon the arbitration clause, if the creditor chooses to enforce the obligation directly in the courts. The question might also arise if it appears that the parties agreed to arbitration in order to secure an enforceable award that would permit payment in the face of exchange controls that would not have permitted payment of the amount in question, absent the award. While neither of the two examples cited above are such a problem as to have given rise to any general agreement as to how they should be handled, there is one common situation that has led to a generally agreed solution. In arbitration as in litigation it is common for the parties to settle their dispute after the arbitration has commenced. Once the parties have reached an agreement to settle the dispute, there is no longer any dispute for 8|Page

the arbitral tribunal to consider.

An arbitration must be founded on the agreement of the parties. Not only does this mean that they must have consented to arbitrate the dispute that has arisen between them, it also means that the authority of the arbitral tribunal is limited to that which the parties have agreed. Arbitration is not part of the State system of courts. As already noted, it is a consensual procedure based on the agreement of the parties. Nevertheless, it fulfills the same function as litigation in the State court system. The end result is an award that is enforceable by the courts, usually following the same or similar procedure as the enforcement of a court judgment.

Commercial It has become common to speak of international “commercial” arbitration, but there is no clear concept of what is meant by “commercial”.1923 Protocol on Arbitration Clauses, Contracting States recognized the validity of an arbitration clause “by which the parties to a contract agree to submit to arbitration all or any differences that may arise in connection with such contract relating to commercial matters or to any other matter capable of settlement by arbitration. The protocol went ahead and said that “Each Contracting State reserves the right to limit the obligation mentioned above to contracts which are considered as commercial under its national law”. The New York Convention is not by itself limited to arbitration in respect of commercial disputes. The limitation applies only if a State makes the necessary declaration. The 1961 European Convention on International Commercial Arbitration was the first international instrument to refer to international commercial arbitration by name. Although “commercial” was not defined, the Convention was limited in application “to arbitration agreements concluded for the purpose of settling 9|Page

disputes arising from international trade between states. As per the model law “The term ‘commercial’ should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not. Relationships of a commercial nature include, but are not limited to, the following transactions: any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business co-operation; carriage of goods or passengers by air, sea, rail or road.”

International Foreign arbitration and International arbitration are not same - An arbitration that takes place in State A is a foreign arbitration in State B. It does not matter whether the arbitration is commercial or non-commercial or whether the parties are from the same country, from different countries or that one or all are from State A. Since even a domestic arbitration in State A is a foreign arbitration in State B, the courts of State B would be called upon to apply the New York Convention to enforcement of a clause calling for arbitration in State A and to the enforcement of any award that would result.

There are two basic methods of defining an international arbitration for the abovementioned purposes. One is to consider the transaction; does it involve a transaction that is either in a State other than the place of arbitration or that takes place in two or more States. The other method is to consider the parties; do they come from different States. It is usually the case that two natural persons who are citizens of different States will be considered to be from different States. However, a long-term resident of a State might be considered to be from that State for the purposes of determining 10 | P a g e

whether an arbitration is international even though he is a citizen of a different State. Similarly, a juridical person would often be considered to be from the State under the law of which it was organized. However, if the juridical person in question is a wholly or substantially owned subsidiary of a foreign natural or juridical person, the subsidiary might be considered to have the nationality of its parent.

In the Model Law an arbitration is international if any one of four different situations is present : 

The parties to the arbitration agreement have, at the time of the conclusion of the agreement, their places of business in different States.



The place of arbitration, if determined in or pursuant to, the arbitration agreement, is situated outside the State in which the parties have their places of business.

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Any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected is situated outside the State in which the parties have their places of business.

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The parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one country.

Why Do Parties choose ICA? The reasons why parties choose international commercial arbitration to solve their disputes can be separated into reasons that are applicable to arbitration in general and those that are applicable specifically to international arbitrations.

The most favorable situation for a party to a dispute in an international commercial transaction is to litigate in one’s own courts. Even if the courts are scrupulously unbiased, that party is litigating at home using its regular lawyers, following a familiar procedure and in its own language. 11 | P a g e

While that is good for one party to the transaction, it is not so good for the other party who faces all the difficulties of litigating in an unfamiliar procedure, in a language that may be foreign and may not be the language of the contract, and not being able to use its lawyers who are familiar with the company. It is also not irrelevant that the one party is staying at home while the other party is staying in a foreign country with all the inconvenience and expense that entails. Arbitration of such disputes is a means to reduce the inequalities. While it is possible for the arbitration to take place in an arbitration organization located in the home country of one or the other party, it is also possible for the arbitration to be administered by an arbitration organization located in a third country. Furthermore, many arbitration organizations will administer arbitrations throughout the world. There is active competition among leading arbitration organizations to offer their services worldwide. There are special concerns about the partiality of the courts when the State is a party to the dispute. The State has too many means to influence decisions in its own courts for foreigners to feel comfortable litigating against it there. The same might be said about arbitrating against the State in an arbitration organization located in that State. This factor is the major reason for the extraordinary increase in the number of bilateral investment treaties in recent years in which foreign investors have the option of instituting arbitration in one of several arbitration forums outside the host State. A final reason for the current popularity of international commercial arbitration is the comparative ease of enforcement of an award as compared to the enforcement of a judgment of a foreign court. Unless there is a treaty between the State in which the judgment was issued and the State in which enforcement is sought, the requested court is under no international obligation to enforce the judgment. While there a number of bilateral treaties for the enforcement ofjudgments, the only significant multilateral treaty exists only between the member States of the European Union. By way of contrast, 135 States are party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. While there are lingering problems with implementation of the Convention by the courts in some States, they are on the whole relatively minor ones. 12 | P a g e

Conclusion The term “international commercial arbitration” has never been defined. However, there is fairly clear agreement on its constituent elements. The most important of the three words is arbitration itself. It is a dispute settlement procedure that, like litigation in the State courts, leads to a final and binding result that will be given execution by the courts. The primary difference between arbitration and litigation is that arbitration is consensual and the final award may treat only those matters that were referred to arbitration by the parties. The New York Convention permits a State to declare that it will apply the Convention only in regard to matters that it considers commercial under its own law. The resulting uncertainty as to what might be considered commercial under the law of a given State is a potentially serious problem, but it has not given rise to significant difficulties to date. The Model Law goes a long way to overcoming the matter by the long and noninclusive list of activities that are to be considered as commercial. The question as to whether an arbitration is international may be important for determining the matters that can be considered by the arbitral tribunal. In some countries anti-trust issues can be submitted to an international arbitration even though they might not be permitted in a domestic arbitration. Similarly, some States permit the State or State entities to submit to arbitration only if the arbitration is international. The question as to whether an arbitration would be international is relevant in the Model Law to determine whether arbitration would be governed by the Model Law or a different law for domestic arbitrations. The Model Law uses a very broad test of internationality to determine its scope of application.

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References Alen Redfern et al, Law and Practice of International Commercial Arbitration, 4th ed (London, UK: Sweet & Maxwell, 2004)

Gary B. Born, International Commercial Arbitration, vol 1 ( The Netherlands, Kluwer Law International, 2009). Carver, Todd B. “ADR - A Competitive Imperative for Business” (2004) 59(3) Dispute Resolution Journal 66.

Website : www.unctad.org

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